Oct
22
First, the real estate part:
A 1031 Exchange, also known as a Like Kind Exchange, is a way of structuring a sale of certain kinds of property so that the seller’s profit or gain is not currently taxed. Instead, the property that is sold is replaced with another “like kind” property. If the transaction is properly structured, the seller’s profit or gain is deferred to a future date.
Section 1031 of the Internal Revenue Code:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
Next, the scam part:
The Internal Revenue Service doesn’t want investors touching their money during a 1031 exchange. Anyone who wants to do this transaction must entrust their money to someone they don’t really know. It can’t be their lawyer, their real estate broker, their lender, or their friend. It has to be a qualified intermediary, according to IRS rules.
There are no actual qualifications to become a qualified intermediary. Sometimes, these qualified intermediaries will take your money and run.
You hand them all the equity in your house, and they blow it on whatever they want. Your 1031 fails, and you then end up owing capital- gains taxes on money that was basically stolen from you. Your only recourse is to sue.
If you love reading about real estate scams then read the full article: Legal tax deal could cost you
Jun
4
Hip Hop Flip Flops
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I’ll be blogging about the major news regarding mortgage broker registration later today in the mean time I wanted to discuss two recent hip hop flip flops in sports:
Kobe Bryant
I can’t stand Kobe Bryant. Don’t get me wrong, I think he’s the second coming of Michael Jordan (sorry LeBron and D-Wade) I just don’t care for sports divas. He ranks up there with Terrell Owens, Alex Rodriguez, and Barry Bonds. You simply can’t root for these guys because they act more like Diana Ross than Derek Jeter.
Kobe recently said in an interview that he wanted out of the Los Angeles Lakers. That’s right, he wanted out of the marquee NBA franchise on the planet. A few hours later in a different interview he reneged and didn’t want out after all. Kobe is a phenomenal talent but I just don’t think he plays well with others. He could’ve played an individual sport like wrestling, bowling or even poker but he opted for a team game like basketball.
The NBA is a joke. The two worst teams (the Griz and the Celts) got jobbed in the NBA draft lottery. The Suns got jobbed in the NBA playoffs. The referees in the NBA are the most biased in professional sports. If LeBron and the Cavs don’t beat the Pistons their would be no interest whatsoever in the NBA finals. So who really cares where Kobe winds up, the NBA has other problems.
Billy Donovan
On the other end of the spectrum is Billy Donovan, the head coach of the Florida Gators. I like Billy Donovan. As a point guard in college, he led the Providence Friars to the Final Four in the mid-80’s. He played briefly for the New York Knicks in the NBA. He began his coaching career shortly thereafter.
After winning two NCAA championships with Florida, Donovan decided to take an Orlando Magic offer and try his luck in the NBA. However after a weekend to think about it, Donovan reneged and decided to return to Florida.
Donovan is an outstanding coach. He has busted my NCAA bracket many times. Every time I thought his teams would choke, they did well. He’s a legend in Florida. Why in the world would you leave the college ranks for the NBA and the Orlando Magic? It didn’t make any sense when they announced that Donovan was leaving for the NBA so I wasn’t surprised that he had second thoughts about returning to Florida. I hope that Donovan returns to the college game. He belongs there and he makes the college game that much more exciting.
What does this have to do with the mortgage world?
It’s okay to change your mind when it comes to your mortgage. Once the emotion involved with making a decision subsides, you return to your senses and sometimes your senses tell you to back out. There are millions of people who wished they changed their mind regarding their mortgage broker and/or their mortgage. If a deal seems fishy, you can and should back out. On a refinance transaction (assuming it’s not an investment property) you have 3 days to rescind your mortgage. On a purchase transaction, it’s a lot more complex, but you can still back out of the deal.
Jan
1
Why should I refinance?
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Many homeowners are using the appreciation in there homes to get rid of high rate credit cards by consolidating. When you consolidate your loans you often reduce the amount of money your spending each month.
One of the main benefits to refinancing is to consolidate consumer debt. Consumer debt (i.e. Credit Cards ampersand Auto Payment) is typically at a higher interest rate and is never tax deductible. Interest paid on debt tied to your home is deducted from your income at the end of the year often substantially reducing your tax liability. This tax favorable status is one of the many benefits of refinancing.
Refinancing your home can save you hundreds per month when you consolidate debt.
What if you want to add on, remodel or update the kitchen? You may not have the cash to do so, but the cost of improvements may be more than covered by the increase in value of the home. This is a great use for a home equity line of credit or a cash-out refinance.
Many people refinance to change from a variable rate to a fixed one or vice versa. Refinancing a high interest rate after a 24 month good payment history could save you a lot of money on your monthly payment.
If planning to purchase investment property, refinancing your primary residence is a great way to raise the cash for the down payment required.
Always consider your long term benefits of doing a refinance. The interest rate is not the most important aspect of the transaction. Even if your current rate is lower, you will probably save more money over time with a debt consolidation refinance then you would be with maintaining the situation you are currently in. Ask yourself a few questions: How long have I had this balance on my cards? At the rate I am paying my credit card debt down, how long will it actually take to pay them completely off? What will be my total cost once I have paid off all my credit card debt?
You can refinance to switch to an interest only loan to maximize cash flow or to switch to a Pay Option ARM to provide yourself with a lot of flexibility in your monthly mortgage payment. Some people also refinance simply to get a way from their current mortgage lender because they are not pleased with them.
Another main benefit of refinancing is to get out of PMI (Private Mortgage Insurance). In most cases if your Loan-To-Value was above 80% when you moved into the home then you most likely got stuck paying PMI. Your home may have appreciated quite substantially over the past year or two and with a new lender they will take new appraised value thus eliminating PMI.
Most people refinance to because of changes in their financial situations. Some, after determining that they can afford a bigger mortgage payment, refinance to a shorter loan term to save on the total amount of interest charges. Others, after experiencing a decrease in income, may refinance to a longer term loan to take advantage of the lower monthly payments. Yet others refinance to withdraw from the equity built in their homes for other financial purposes.
Using equity in your home to pay off high rate loans (credit cards, auto loans, etc.) may have certain tax benefits also. Consult your CPA for more information.
Many homeowners refinance to pull out cash to purchase another property.
To reduce the term or length of your loan, doing so can save you thousands of dollars in interest.
Jan
1
Why Pay Retail?
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Here are reasons why you shouldn’t pay retail mortgage rates from your banks, credit unions, and mortgage companies:
Many home owners looking to improve their situation by calling their local bank. They are quoted rates that are specifically targeted to the homeowners themselves. This is very similar to prices listed at a department store. What they may not know is that most banks have two lines they offer. Retail and Wholesale. Wholesale rates are offered to mortgage professionals only and are typically 1/4 to 1/2 a percentage point lower. This is because the lending institution does not have to pay for advertising and staff to complete the loan transaction . The mortgage professional works for the borrower. Utilizing a mortgage professional to get the lower rate (and in many cases) favorable terms can save the homeowner tens of thousands of dollars over the life of the loan.
It is not unusual for a top notch mortgage broker to be able to offer an identical loan program from a major mortgage lender (Wells Fargo, Washington Mutual, Countrywide, etc.) with lower fees or rates than if a consumer were to go directly to that same lender
The fees that brokers charge will vary from one to the next, as well as the loan program that they think is best for your situation. Know that different brokers work with different lenders, and have different experiences with those lenders. If you are wondering about the loan program and fees that your broker is offering, call me today at to see how I compare.
Most brokers work with a large number of lenders, often in the hundreds. They use their expertise and past experience to ’shop’ all of those lenders for a loan that is right for you. If you wanted to do the same thing, it would take an enormous amount of time and research. By working with a broker, you can save yourself a lot of trouble. And since the broker gets your mortgage at a discount rate, you won’t pay any more than you would at the bank. It’s very similar to how retail stores buy their products in large quantities at a low price, and then charge you a higher price. It’s how they make their profit. But that doesn’t mean that you’re paying more than you would somewhere else.
The local bank also does not normally offer the flexibility of a mortgage broker. Mortgage brokers can move your loan over to a different lender if there is a problem or if interest rates drop. A local bank cannot do this with there in house programs.
Jan
1
Why deal with a mortgage broker?
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There are many reasons why you should employ the services of a professional, licensed mortgage broker when you are ready for your next home loan. Probably the biggest reason is that they are on your side. If you go directly to a bank to get a home loan, the banks loan person has only the banks interest in mind, not yours. Another reason is that mortgage brokers are contracted with banks and lenders at wholesale prices, which mean you can get a better rate. For example, if you had the option of buying a new BMW from either the BMW dealer for full price, or from BMWs wholesaler that gets the cars directly from the plant at a huge discount, which would you choose? Most people like to save money and when you work with a mortgage broker, you are likely to get a better rate.
Mortgage Brokers work to find the best loan program for your specific situation matching you with the loan program that fits best. Having access to hundreds even thousands of loan programs means that your broker will find the best program for your personal needs.
What’s the difference between a mortgage broker and a lender? A mortgage broker counsels you on the loans available from different wholesalers, takes your application, and usually processes the loan which involves putting together the complete file of information about your transaction including the credit report, appraisal, verification of your employment and assets, and so on. When the file is complete, but sometimes sooner, the lender “underwrites” the loan which means deciding whether or not you are an acceptable risk.- Back to Top -Will I save money going directly to a mortgage lender? Not necessarily. In fact, if you are a reasonably astute shopper, you will probably do better dealing with a mortgage broker. Mortgage brokers do not add any net cost to the lending process, because they perform functions that would otherwise have to be done by employees of the lender. Furthermore, because mortgage brokers deal with multiple lenders — in a typical case, 25 to 30, sometimes more — they can shop for the best terms available on any given day. In addition, they can find the lenders who specialize in various market niches that many other lenders avoid, such as loans to applicants with poor credit ratings, loans to borrowers who do not intend to occupy the property, loans with minimal or no down payment, and so on.
The best reason of all, the Mortgage Broker works for you. He doesn’t work for the bank or any lender, but for you. His primary goal is to fit you into a product that is right for you, process the loan as quickly as possible, fund the loan in a timely manner. Another satisfied client and hopefully many referrals
Another reason to work with a Mortgage Broker is that you will have access to hundreds of loan programs instead of the small number offered by a specific lender. Mortgage Brokers also are more likely to help borrowers with poor credit, hard to prove income, or financing for unique situations.
Brokers make banks compete for your business
By having the ability to switch lenders at any time A mortgage broker can also deal with any problems that may arise much more efficiently then a bank.
Mortgage brokers have hundreds of loan products available to them, where as your local bank may have only a handful of loan programs. This means that credit, income, and other factors are not as important when it comes to getting you approved. The mortgage brokers job is to take a completed loan application and present it to various lenders, to find you the best possible rate and program that fits your needs.
Mortgage Brokers are compensated only if the mortgage loan closes. For this reason, mortgage brokers have an interest to see to it that the home buyer’s purchase proceeds quickly and smoothly.
Jan
1
When to get qualified for a mortgage?
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An explanation of when to get qualified for a mortgage:
Should I get qualified for a mortgage before looking for a new house or find a house I like and then get qualified? You should absolutely get pre-qualified for a home loan before house hunting. By getting qualified first this will allow you to know how much house you can afford and how much of a mortgage you can qualify for. Also, most realtor’s will want to see a pre-approval before they start showing you houses, and the listing realtor will definitely want to see a pre-approval before accepting a bid on a house.
There is usually no commitment on your part to get -qualified. In most cases, you don’t even need to provide personal income documents. Of course, the more documents you furnish to your mortgage broker, the better and more accurate your pre-qualification will be. If you provide your mortgage broker with income and assets documentations, he/she can get you pre-approved from a bank, which is basically a loan approval, pending the information of the home and the appraisal.
Definitely begin the process as early as possible with your mortgage broker. This will give you a nice clear picture of what you can afford and what the process will be once you find your dream home. The sooner you begin with your mortgage broker, the sooner you can move through the loan process once you find your home!
Giving yourself time needed to save up for a down payment, improving your scores, and moving balances on accounts is imperative to a successful home loan transaction.
It’s actually not a bad idea to start looking into being qualified as much as three months before you plan on purchasing a home. That way, if there are any credit issues that you were not aware of, there is a good chance you will have time to address them before the purchase.
If you have an Adjustable Rate Mortgage(ARM) Loan, and the fixed period is will be expiring soon. You should look into becoming qualified for a new mortgage loan at about three months prior to the fixed period’s expiration.
It is a great idea to get pre-approved before you start to look for a new home so you know how much you have to finance. With today’s many 100% purchase programs a down payment is becoming a thing of the past for many people. But with no down payment the amount you can afford to finance will go down.
Jan
1
While many borrowers are concerned with what they need to do in order to qualify for a mortgage, there are also a number of things that borrowers should not do once approved for a loan.
In addition it’s a good idea to give yourself a couple of extra days if possible to schedule movers, landscaping companies or and other repairs for the new house. This will give you extra time to get the closing completed and the transaction funded. If you schedule movers or other companies the same day as closing or even the day after you might be in for a stressful situation if for any reason the closing is delayed.
Always consult with your mortgage professional when there is a question regarding any of this because it can cost you your home loan.
After applying for a mortgage do not let anyone pull your credit or apply for any new credit at all. Try to keep everything the same as far as credit goes as when you where initially pre-approved unless told different by your loan officer.
Do not ignore to tell your mortgage broker about any material changes in the purchase agreement you and the seller come to agree upon after the mortgage process has begun. A slightly lower sale price can alter the loan-to-value ratio and requires re-submission of loan documents. Your mortgage broker and lender have to be made aware if any addendum is later attached to the purchase contract.
After applying for a mortgage be sure to advise your loan officer to any changes in your marital status or name changes. This will help you avoid problems with the final closing documents and/or title problems.
Be certain not to lease a car or allow a car dealer to “pre-qualify” you for a car lease or loan. It doesn’t matter whether or not the car is new or used, because either way this would fall under the category of taking on new debt, and is a very common reason for individuals, particularly those making purchases for the first time, run into complications with their mortgage application process after the fact. If you have any need to make any further applications for substantial credit, please give us a call.
Do not take on new debt. The temptation is strong. There are so many big purchases that people want to make in connection with a move: appliances, window treatments, furniture, etc. When you add to this the fact that, today, everyone offers easy terms and no money down—well, why not just do it? Answer: because you will change what the mortgage industry calls your “debt-to-income ratios” (the relationship of your income to your debt).
Do not change jobs. If at all possible, try not to make a career move during the time between your mortgage application and the closing on the home you are purchasing. But, you ask, “What if it’s a BETTER job, for MORE money, in a DIFFERENT field?” Still, try and wait until AFTER closing. One of the factors mortgage companies consider is length of present employment; they are partial to stability. At the very least, changing jobs initiates the need for more paperwork, and may delay your closing.
Do not pack too soon. Well, go ahead and pack your clothes and dishes. But do not pack your bank statements, tax returns, or other important paperwork. Most especially, do not pack your checkbook! More than one buyer has had closing delayed while a friend or relative hurried over with additional funds because the checkbook was in the moving van.
Do not lease a new car. This should go under the general heading of “no new debt.” It is highlighted here because, for some strange reason, many buyers do run right out and lease a new car during the time between mortgage application and closing! As with any debt, this will change your “debt-to-income ratios” and may cause you not to qualify for your mortgage.
Do not stop making your regular monthly payments after applying for a mortgage. Borrowers refinancing their home to payoff other debts sometimes stop making their regular monthly payments because they are going to payoff the debt. This can cause problems during the loan process because not making payments on time may hurt your credit rating. Lower credit scores may cause your interest rate to go up or result in you being denied credit.
Once you apply for a mortgage to refinance or for a home purchase your job is not done. Be involved, don’t just wait for the call to schedule the closing. Check with your mortgage broker, find out what is going on with your loan, talk to your realtor make sure everything you want done is getting done. Be proactive not reactive, don’t wait for a problem then rush to solve it, work to prevent any issues form happening in the first place.
Do not pay off any old collection accounts on your credit report unless you were specifically told to do so by your mortgage professional. Paying off old collection debt will often signal to the credit reporting agencies that there is new activity on an negative entry and actually lower your credit score.
Jan
1
Tips and advice on how to avoid mortgage fraud:
The easiest way to avoid mortgage fraud is to work with a reputable Loan Professional who is both educated and experienced. Ask for recommendations from friends and family to find out which lenders are the best in your area.
Do not over state or falsify your income on a stated loan application. By doing so you are committing loan fraud. If the loan is ever audited you can and will be held accountable for any and all false information you submit for a loan application.
There are federal and state laws governing how each party involved in a loan transaction should behave. Most of these regulations are contained in Uniform Residential Loan Application and the many disclosures you will receive in the initial stage of the loan application. Have your loan officer go over these laws with you to avoid unknowingly violating any of these statutes.
Reputable mortgage brokers charge rates and fees that do not vary based on age, gender, race, religion, or national origin. If you feel you have been discriminated against contact your state licensing authority to file a complaint.
If you ever get seriously behind in your mortgage payments and feel foreclosure looming be especially wary of companies offering assistance. Often these are scam-artists who swindle thousand’s from unknowing homeowners, sometimes leaving them penniless and homeless.
Never pay any fees without a written agreement stating exactly what services will be rendered for the fee. Also, find out up front if any part of the fee is refundable.
The most common form of mortgage fraud is occupancy fraud. An example of this is where the borrower misrepresents his intended use of the house by saying it is owner occupied when he really uses the property as a rental house. Investment loans carry a slightly higher interest rate because they are statistically more likely to end up in foreclosure. There are a few instances in which a family can legitimately have two primary residences: Ask your Loan Professional for details.
Do not hesitate to walk away from anyone suggesting you lie about anything on your loan application. Never sign any loan documents that have been left blank; these documents could be altered later.
Take the time to read each word of every document: they are important! You should be especially wary if you are ever rushed into signing a document. Pay attention to your “gut feelings” and know that no reputable broker should ever pressure you to sign before you are ready.
Jan
1
The 4 Cs That Count When Buying a Home
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Capacity = Willingness and ability to pay back the loan Credit = Payment history and current balances; willingness to repay Character = Job stability and or time in property Collateral = Property or what the lending institution will be left with if the borrower fails to pay.
Another one of the C’s that is often over looked is Cash to Close. Liquid assets readily available to pay the down payment, closing costs, and prepaid items of a mortgage transaction.
Credit is one of the most important things a borrower must be aware of when buying a new home. The credit report is a representation of how you pay your bills. If you have great credit. A Bank is willing to finance up to 106% . Which would allow a person to purchase a house with no money down.
Character – from the standpoint of underwriting, lenders are usually looking for a minimum or two years work history at the same company. If you have changed companies in the past two years, but are in the same line of work, as long as your income has stayed the same or increased lenders will accept that. The longer you have been employed with the same company and in the same line of work the better off you are and the more lenient the lender may be on other factors.
Knowing what lenders are looking for and planning to provide them what they need in order to fund your loan is the best way to make sure you can get the best loan for you.
From an underwriting perspective, if a loan package is significantly strong in one of the “C” areas, deficiencies in another “C” can be given less weight. Example, if a borrower is putting down a large down payment the Collateral would be stronger so a weaker credit score might be tolerated.
Credit - Although there are a few programs that are not credit score driven, by far you will be able to secure a better rate if your credit rating is good. Payment history plays a big part in your credit score and this shows the lender your track record of payments to your creditors. It’s more probable that you will pay your loan on time if you pay your other bills on time. If you have high balances on your other debt such as credit cards and automobiles this can affect your Debt-to-income (DTI) ratio and put you at more risk in the eyes of the lender. The reason good credit scores are important is because you have the ability with good scores vs. bad scores to qualify for no income verification or no documentation loans.
Collateral-From the standpoint of loan underwriting, the higher the stake a homeowner has in the property, the less likely he would default on the mortgage. Statistics have shown that if homeowners have 20% or more in equity in their homes, lenders are less likely to suffer a loss as a result of default. For home buyers who have less than 20% to put down as down payment, many banks are willing to grant them loans as long as these home buyers have other compensating factors, such as a better than average credit profile, or a low debt to income ratio. As a safety measure, most banks require home buyers putting down less than 20% to carry Private Mortgage Insurance, which insures the banks against loss due to homeowner default.
Capacity - Capacity goes hand and hand with credit. When a lender reviews your credit there are 2 major factors they are looking at aside from credit scores. One is your DTI or Debt-to-income ratio and the other is your credit history. Both of these will determine your capacity to repay the loan or your risk to the lender.
Capacity also refers to the amount of debts you can realistically pay given your income. Creditors look at how long you’ve been on your job, your income level and the likelihood that it will increase over time. They also look to see that you’re in a stable job or at least a stable job industry. It’s important when you fill out a credit application to make your job sound stable, high-level and even” professional.” Are you a secretary or are you an executive secretary or the office manager? Finally, creditors examine your existing credit relationships, such as credit cards, bank loans and mortgages. They want to know your credit limits (you may be denied additional credit if you already have a lot of open credit lines), your current credit balances, how long you’ve had each account and your payment history—whether you pay late or on time.
Jan
1
Tax Advantages of Home Ownership
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Your home provides many tax benefits. Here are some of the benefits of being a home owner.
- All yearly interest is tax deductible. Including any points paid for financing.
- You can deduct the total amount of your yearly property tax bill.
- In addition to paid interests and real estate tax being tax deductible, most of the settlement costs are also deductible. For purchase transactions, settlement charges are deductible in the year the transactions occur. For refinances, closing costs are deductible throughout the life of the loans. As always, consult a certified tax accountant before taking any such deductions.
- Home values have sustained growth through the years. Historically there has been no better financial investment than home ownership. It is the best hedge against inflation because real estate is the world’s only commodity in absolutely limited supply. Population growth steadily increases demand, thus the increasing value of real estate over time has been constant.
- You can also use your homes equity to your advantage by consolidating debt, purchasing big ticket items with a 2nd mortgage or HELOC at comparable interest rates, lower payments and you are able to deduct the interest from these mortgages as long as the loans do not exceed 100% of your homes value.
- Please keep in mind though, because of the complexity of tax laws, you must always consult your individual tax advisor for the precise tax advantages of your home and it’s mortgage. Mortgage professionals can give you general guidelines but things can vary from homeowner to homeowner.
- The tax advantages of renting - NONE! Don’t pay someone else’s mortgage payment for them every month. Contact your trusted local mortgage consultant and get pre-qualified for a home loan today.
- In addition to tax advantages you can greatly benefit from your home’s appreciation. A general rule of thumb is about 4 - 5% per year on average. If you bought a home that is worth $100,000 then at the end of one year’s time it could be worth:1st year = $105,0002nd year = $110,2503rd year = $115,762and so on…